Investment Boost can help builders

Builders could find themselves with a much lower tax bill at the end of the financial year 2026 thanks to a new Government scheme announced in May 

Finance Minister Nicola Willis said that the new Investment Boost will let businesses deduct 20% of the cost of a new asset from taxable income, on top of depreciation. 

“Businesses that go out today and buy machinery or tools or equipment or vehicles or technology can immediately deduct 20% of that cost from taxable income – meaning a much lower tax bill.” 

Willis added the Investment Boost applies to new assets purchased in New Zealand as well as used assets imported from overseas. It includes commercial and industrial buildings but excludes land or residential buildings other than hotels, hospitals and rest homes. 

Building firms – from sole traders to large group home builders – can take advantage of the new scheme. 

“There’s no cap on the value of eligible investments. All businesses, regardless of size, can benefit,” Willis added. 

“The policy will reward businesses, who make new investments by reducing their tax bills in the year they purchase new assets.” 

According to the IRD, the scheme also covers work vehicles and there is no limit on the number of assets a person can claim. 

Construction projects, even if they are already under way, can also be included in the Investment Boost. 

“If you started a construction project before 22 May 2025, your asset may be eligible for Investment Boost,” states an IRD fact sheet about the scheme. “The asset needs to be used or available for use for the first time on or after 22 May 2025. The asset must meet the other qualifying conditions.” 

A practical example 

A large group home builder invests $200,000 in assets. Under the status quo, the company can claim annual depreciation deductions of 10.5% of the value of the assets. This deduction reduces its taxable income in the year it purchases the assets by $21,000.  

With Investment Boost, the company can claim 20% of the value of the assets ($40,000) as a tax expense in the year of purchase, in addition to the 10.5% annual depreciation deduction on the remaining 80% of the value of the assets ($16,800). Together, these deductions reduce its taxable income in that year by $56,800.  

That amounts to an additional deduction of $35,800 from taxable income under the Investment Boost scheme, compared to the status quo. This translates to a $10,024 reduction in its tax bill (at the company tax rate of 28%). 

At the same time, the depreciation deductions it receives in future years will be smaller because it has claimed more deductions in the first year. 

The company can make use of the timing advantage of receiving deductions earlier by reinvesting its additional after-tax income to increase its future returns. 

How it works for commercial buildings 

As the Investment Boost applies to commercial buildings, a company could invest $5,000,000 in the construction of a new commercial building. The 20% Investment Boost incentive will allow them to deduct $1,000,000 from their taxable income in the year one vs $0 under existing depreciation rules. 

A welcome policy 

Master Builders Chief Executive Ankit Sharma said he was delighted with the Investment Boost and believed it would help to deliver “sustainable growth”. 

“The increasing cost of doing business is a critical issue for our members. They will welcome the Government’s Investment Boost, allowing businesses to deduct 20% of the cost of new assets immediately from their taxable income on top of normal depreciation. 

“The sector has shown adaptability in recent years. Now we’re focused on sustainable growth. We look forward to working closely with government to deliver the Budget’s vision and ensure our sector continues to contribute to a resilient, productive Aotearoa. 

“Builders across Aotearoa are ready to deliver. Budget 2025 sets out positive intentions, particularly in housing and infrastructure delivery. Now, our shared focus should be on delivering efficiently and effectively, for the benefit of our communities and economy.” 

New Zealand Certified Builders (NZCB) Chief Executive Malcolm Fleming also welcomed the scheme, calling it “good news” for builders. 

“The Investment Boost is good news. Building companies need to continually invest in new tools, machinery, and vehicles if they want to be successful. However, in the current economic climate, builders have been reluctant to make these investments and NZCB builders, in particular, have chosen to spend that money on supporting their people, which is admirable.  

“Combining this 20% immediate deduction and a diminishing value depreciation schedule will allow builders to make necessary reinvestments in their fixed assets.”